Paccar Inc., the maker of Kenworth, Peterbilt and DAF Trucks, reported record third-quarter net income and beat top- and bottom-line earnings estimates, which is becoming a common achievement.
“Demand is strong for Kenworth and Peterbilt trucks with [orders for] the first quarter of 2024 filling in quickly,” Paccar CEO Preston Feight said on an earnings call with analysts Tuesday.
The Bellevue, Washington-based truck maker earned net income of $1.23 billion, or $2.34 per diluted share, compared to $769 million or $1.47. Q3 revenues of $8.7 billion came in 23% higher, or $790 million, than the $7.06 billion reported in the year-ago quarter.
Analysts expected a 44% improvement in year-over-year earnings to $2.13 per share. Paccar delivered a 60% gain. The company has outpaced earnings per share and revenue estimates every quarter for the past year.
Every segment, from new and used truck sales, to parts and financial services — except for financial services pretax income — outperformed year-ago results.
Q3 highlights:
- Net sales and revenues of $8.7 billion.
- Record net income of $1.23 billion.
- Truck, Parts and Other gross margins of 19.5%.
- Global truck deliveries of 50,100 units, the midpoint of its estimate of 48,000 to 52,000.
- Parts revenues of $1.58 billion with pretax income of $412.3 million.
- Financial Services pretax income of $133.8 million.
Paccar estimates 48,000 to 51,000 truck sales in Q4. The projection is based on more production days in Europe and fewer production days in North America because of holidays. The company expects margins of 19%, similar to the third quarter, President and CFO Harrie Schippers said. Paccar has never had a full-year margin exceeding 16%.
Slowing sales expected in 2024
Full-year U.S. and Canada Class 8 industry retail sales should range between 295,000 and 315,000 vehicles, Paccar said. The company predicts a slower 2024 with retail sales in a broader range of 260,000 to 300,000 vehicles.
“There may be some moderation in truckload. People are trying to figure out how to think about the next three years,” Feight said. “I’m not smart enough to know what Q2, Q3, Q4 are going to look like. We just feel like we’ll see some adjustments there from this year. But it could still stay at a replacement demand level.”
Paccar sees vocational, less-than-truckload and medium-duty models performing well. Kenworth and Peterbilt combined have a 40% share of the North American vocational market.
The Peterbilt brand starts production of its new Model 589 long-hood truck in January. That completes a full makeover of its portfolio in the past two years — more new products than in any similar period in Paccar history. The predecessor Model 389 accounted for about 20% of Peterbilt sales. Paccar expects the Model 589 to perform similarly.
“The 589, well, the right word is it’s ‘cool,’” Feight said. “It’s going to be iconic in the industry. It looks fantastic and I think it will be a great flagship for the Peterbilt team.”
New parts center ‘almost immediately good for the business’
Paccar’s parts business, which has set record after record in quarterly sales, posted sales of $1.58 billion compared to $1.47 billion in the year-ago quarter. Pretax profit of $412.3 million came on margins of 31.5% and beat the $373.6 million income in Q3 2022. Schippers projected 7-9% higher parts sales in Q4 versus the year-ago October-to-December period.
Paccar has begun construction of its 19th global parts distribution center, a 240,000-square-foot facility in Massbach, Germany, that will open in 2024.
“It’s almost immediately good for the business,” Feight said. “What a PDC does is it allows us to have closer points of contact with our customers, get them parts in a more quick way and support their businesses for more same-day or next-day parts delivery.”
Capital and R&D spending on the rise
Paccar’s strong balance sheet and top-notch credit ratings support estimated full-year capital investments of $650 million to $675 million, with another $675 million to $725 million planned in 2024, Schippers said.
Research and development spending also is on the rise from an estimated $410 million-$420 million this year to $470 million-$520 million in 2024.
“Paccar is increasing its investment in fuel-efficient diesel and electric powertrain technologies, autonomous systems, connected vehicle services, and next-generation manufacturing and parts distribution capabilities,” Schippers said.
The company will have a 30% interest in a joint venture with Cummins Inc., Daimler Truck and China’s EVE Energy to manufacture lithium-iron phosphate batteries for commercial electric trucks in the U.S. The 21-gigawatt-hour factory is expected to cost $2 billion to $3 billion, with production starting around 2027. Paccar’s contribution will be booked as an investment.
Editor’s note: This story has been updated with comments from the earnings call.
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